bhps olympic dam has no value under new tax , page-3

JD

"you can't pay a 40% tax on profit without a profit,"

That is not the point of the article. Do you have no concept of what 'economic return' actually means? HERE is the point using a simple example.

Eg: Assume a project with 20 years making a net 10% return on capital (ie $10 per annum).

Capital cost = $100

Total return (not discounted) over 20 years is $200 (so a total return of $100 (ie net of initial capital cost).

That would be great if that's all you needed to consider.

But now take out the annual tax of $4 (or $80 over 20 years) . You are left with $20 from that $200 return. Now apply a discounting rate to that and you will find that you are in NEGATIVE return territory. However, if the tax rate was 30% (ie $3 per year), you'd be left with $40. Maybe, just maybe, your net return after discounting would be POSITIVE. Depends on what discount rate you apply.

I have OVER simplified it...but its an example of how an incrase in tax could potentially turn a positve economic return into a negative economic LOSS. However had they simply NOT proceeded with the project and stuck that capital in say a basic old term deposit...voila they have a positive return...hence the project has not economic return.

Cdchi1